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During the month of July 2015, MNC – a large rice dealer, entered into a contract with FMCG for the provision of 10,000 sacks of rice. The contract was to make delivery of this quantity in September in the standard packing of 50 KG sack at Rs. 6,750 each. FMCG intends to sell this rice at Rs. 155 per kg in the local market in the days to come. But, owing to increase in certain input prices, MNC raised the rate to Rs. 7,350 per sack and refused to deliver below this rate at any cost. Failure to receive this delivery at start of the season, FMCG has been facing heavy loss on account of its business goodwill. To cover this damage, it has filed a law suit of Rs. 4 million in excess of the loss against MNC. The lawyers of MNC are of the opinion that the outcomes of this suit would possibly be in favor of FMCG. It has been estimated that the court may award damages ranging from Rs. 5 million to 7 million to FMCG. However, MNC’s legal team believes that considering the history of such cases, the best estimate of the potential liability may not exceed Rs. 5.75 million.
A. Determine the actual amount of loss.
B. Determine the amount of total damages claimed by FMCG.
C. Without passing a journal entry, describe the accounting treatment of opinion given by the lawyers of MNC in the light of IAS 37 (Provisions, Contingent Liabilities and Contingent Assets)
